June 2004

Radio Frequency Identification

RFID...Coming of Age
What is Radio Frequency
Identification
Radio Frequency Identification (RFID) is a sys-
tem that facilitates the tracking of objects,
primarily for inventory tracking, via a three-
part technology comprised of a reader, a
transceiver with decoder and a transponder
(RF tag). RFID is a wireless system that works
in conjunction with an organization’s infor-
mation technology infrastructure to improve
business processes such as inventory man-
agement and efficiency in supply chain man-
agement.1
History
The development of RFID was spurred by
the need to enhance tracking and access
applications in the 1980’s in manufacturing
and other hostile environments. This non-
contact means of gathering and tracking
information proved to be resilient. RFID is
now an established part of specific busi-
ness processes in a variety of markets2.
How RFID
works
The reader emits a radio signal that activates
the tag and reads and writes data to it. As
products are shipped, received or stored,
the information (encoded on a bar code-
like tag) can be read and received by the
reader, which is attached to a computer.
RFID has been integrated into the EPCglobal
network and uses the EPC (Electronic
Product Code). The EPC is a unique number
that identifies a specific item in the supply
chain. The EPC is stored on a RFID tag,
which combines a silicon chip and a reader.
Once the EPC is retrieved from the tag, it
can be associated with dynamic data such
as the origin of an item or the date of its
production. Much like a Global Trade Item
Number (GTIN) or Vehicle Identification
Number (VIN), the EPC is the key that
unlocks the power of the information sys-
tems that are part of the EPCglobal
Network3.
EPCglobal and
RFID
EPCglobal is a joint venture between EAN
International and the Uniform Code Council
(UCC). It is a not-for-profit organization
entrusted by industry to establish and sup-
port the EPC Network as the global stan-
dard for immediate, automatic, and accu-
rate identification of any item in the supply
chain of any company, in any industry, any-
where in the world. EPCglobal’s objective is
to drive global adoption of the EPCglobal
Network.
EPCglobal is also an organization that is
leading the development of industry-driven
standards for the Electronic Product Code
Network. This network supports the use of
RFID in today’s “fast-moving, information rich
trading networks. EPCglobal is a member
driven organization of industry participants
that is creating global standards towards
providing efficiency gains in supply chains
and relationships with trading partners.
2
 The EPCglobal Network was developed by
the Auto-ID Center, an academic research
project headquartered at the Massachusetts
Institute of Technology (M.I.T.) with labs at
five leading research universities around the
globe. The EPCglobal Network is a set of
technologies that enable immediate, auto-
matic identification and sharing of informa-
tion on items in the supply chain. In that
way, the EPCglobal Network will make
organizations more effective by enabling
true visibility of information about items in
the supply chain. 4
Recent
Developments
in RFID
Wal-Mart, the world’s second largest com-
pany, is deploying RFID technology in its
stores. “Wal-Mart is positioning itself at the
front of an inevitable technological revolu-
tion, even if it means dragging others into a
future they’re not sure they want,” said
Dillman, Chief Information Officer, Wal-Mart.5
Furthermore, Dillman states, “I had no idea
we’d get a reaction like this.
But the fact that this is happening in public
doesn’t change our focus on making sure it
happens.” Dillman is referring to some
resistance from consumer advocates who
are concerned about privacy issues and
suppliers who are concerned about the fair
cost for their end of the technology – the
RFID tags.
The Department of Defense is embracing
this emerging technology as well. “The
Defense Department recently announced it
would require its suppliers to use wireless
tags based on radio frequency identification
(RFID) technology by January 2005. The
policy calls for Defense Department suppli-
ers to put RFID tags on the ’lowest possible
piece‘ - each part, case or pallet, for exam-
ple - and pertains to all items except bulk
commodities such as gravel. The goal is bet-
ter inventory management through faster,
hands-off processing.” The Department of
Defense purchases not only just multi-million
dollar military equipment, but over $20 bil-
lion dollars in consumer products and is
seeking to make the supply chain more effi-
cient.6
Companies like Microsoft, IBM, and Philips
Electronics, which recently made product
enhancement announcements in this area,
are also participants in the industry. “IBM, in
Armonk, New York, and Philips, in
Amsterdam, will team on RFID for supply
chain management, retail and asset manage-
ment, as well as smart card technology for
finance, e-government, transportation and
event ticketing.” the company said. “As part
of the joint effort, IBM Global Services will
build an RFID system for use in for Phillips’
semiconductors facilities for manufacturing
and distribution in Taiwan and Hong Kong.”7
Efficiency Gains
from RFID
As mentioned above, large organizations,
such as the Department of Defense, are
looking to improve their supply chain man-
agement and reduce labor, errors, and han-
dling costs.
3
According to the RFID Journal, “RFID promis-
es to profoundly improve key operational
areas for manufacturers in many industries.”
Operationally some of the issues that sur-
round supply chain management are ques-
tions about the quantity of goods to be
produced, when they should be made,
where they need to be shipped, and what
is the location of the inventory currently
manufactured. “With timely and accurate
answers, manufacturers can run much more
efficient forecasting, production, and distri-
bution operations.
In fact, by deploying RFID, just-in-time manu-
facturing can give way to real-time manufac-
turing. “This will touch every part of a man-
ufacturer’s business,” says Lyle Ginsburg,
managing partner for technology innovation
in Accenture’s products operating group.
He says that RFID technology will have a
positive impact on the management of raw
materials, reusable assets, warehouse inven-
tory, shipments, returns processing, logistics,
and many other aspects of manufacturing.”8
RFID promises to reduce the need for many
manual processes, such as hand counting of
items to keep track of inventory. The prices
of RFID technology are forecasted to fall,
similar to the introduction of previous new
technologies.
Regulatory and
Privacy Issues
Consumer concerns could become the
main impetus for RFID regulation.
Cap Gemini, Ernst & Young, with assistance
from SmartRevenue, a Ridgefield,
Connecticut based research firm, polled
1,000 U.S. adults, 18 years of age or older,
in an Internet survey. “The survey found that
just 23 percent of consumers had heard of
RFID technology, and that among those who
recognized the term, perceptions were
mixed. For example, when those who had
heard of the technology were asked
whether they perceived RFID as favorable or
as unfavorable, 48 percent answered they
didn’t know or had no opinion about it,
while 42 percent indicated they had a
favorable perception, and just 10 percent
had an unfavorable perception.”9
In August 2003, technology and consumer
advocates testified at a California Senate
hearing and called for regulation of RFID –
the hearing was presided over by state
Senator Debra Bowen. According to CNet,
“Privacy activists worry, however, that the
unchecked use of RFID could end up tram-
pling consumer privacy by allowing retailers
to gather unprecedented amounts of infor-
mation about activity in their stores and link
it to customer information databases. They
also worry about the possibility that com-
panies, governments and would-be thieves
might be able to monitor people’s personal
belongings, embedded with tiny RFID
microchips, after they are purchased.”10
Some privacy advocacy groups have identi-
fied several categories of concern regarding
RFID. While they acknowledge that there
are beneficial uses of RFID, they suggest
some attributes of the technology could be
deployed in ways that threaten privacy and
civil liberties:11
Hidden placement of tags. RFID tags could
be embedded into/onto objects and doc-
uments without the knowledge of the indi-
vidual who obtains those items. As radio
waves travel easily and silently through fab-
ric, plastic, and other materials, it is possible
4
to read RFID tags sewn into clothing or
affixed to objects contained in purses,
shopping bags, suitcases, and more.
Unique identifiers for all objects worldwide.
The Electronic Product Code potentially
enables every object on earth to have its
own unique ID. The use of unique ID num-
bers could lead to the creation of a global
item registration system in which every
physical object is identified and linked to its
purchaser or owner at the point of sale or
transfer.
Massive data aggregation. RFID deployment
can lead to the creation of massive databas-
es containing unique tag data. These
records could be linked with personal iden-
tifying data, especially as computer memory
and processing capacities expand.
Hidden readers. Tags could be read from a
extended distance, not restricted to line of
sight, by readers that can be incorporated
invisibly into nearly any environment where
human beings or items congregate. RFID
readers have already been experimentally
embedded into floor tiles, woven into car-
peting and floor mats, hidden in doorways,
and seamlessly incorporated into retail
shelving and counters, making it virtually
impossible for a consumer to know when
or if he or she was being “scanned.”
Individual tracking and profiling. If personal
identity were linked with unique RFID tag
numbers, individuals could be profiled and
tracked without their knowledge or con-
sent. For example, a tag embedded in a
shoe could serve as a de facto identifier for
the person wearing it. Even if item-level
information remains generic, identifying
items people wear or carry could associate
them with, for example, particular events like
political rallies.
The Future of
RFID
RFID technologies are expected to grow
quickly over the next few years as compa-
nies seek to improve their supply chain
operations, and as the price of RFID drops.
According to an analysis from Venture
Development Corporation (VDC), “Global
shipments of RFID systems (including
transponders, readers, software, and servic-
es) reached $890 million in 2000.”12 The
forecast from VDC’s market study entitled
“Global Markets and Applications for Radio
Frequency Identification Equipment and
Systems” predicts shipments of RFID to
increase by approximately by 24% annually
to reach $2.65 billion by 2005.
The applications for RFID in 2000 reached
most economic sectors although the most
use was in industrial/manufacturing, trans-
portation, distribution, and warehousing
industries. Smart label applications as well
as high-speed processing will fuel growth in
these sectors. Other growth sectors
include health care, commercial, and retail
services. For example RFID could be used
as a tool against product counterfeiting by
permitting more precise identification and
verification of the sources of shipments.
According to VDC, “Virtually every eco-
nomic sector and industry where data need
to be collected contains potential applica-
tions for RFID technology.” VDC’s research
reveals that RFID hardware shipments were
concentrated among industrial/manufactur-
ing and transportation, distribution, and
5
warehousing organizations in 2000 (see
Exhibit 1). Future revenue growth within
these economic sectors will primarily be
driven by the development of the smart
label market, particularly to support growing
applications such as baggage handling and
high-speed processing. In addition, these
two economic sectors are expected to
account for the largest percentages of RFID
hardware revenues in the near and long
term; however, their annual growth will be
slower in comparison to the annual growth
of the emerging health care, commercial,
and retail services sectors.
In terms of the future growth of the health
care, commercial, and retail services sec-
tors, the following points are relevant:
· Interest is increasing among healtcare
organizations to support applications
such as waste management, high-value
asset tracking, record/document
tracking, and real-time location systems.
· The commercial services segment is
expected to grow rapidly through the
emergence of consumer applications
such as automated payment systems,
m-commerce (mobile commerce),
libraries, rental item tracking, and re-
usable media.
· Adoption of RFID systems in retail
environments has been limited and con
centrated primarily in security/access
control applications. Future develop
ments in the retail sector are largely
focused on creating smarter EAS (elec
tronic article surveillance) transponders
to support, for example, the storage of
pertinent product information within a
retail item, such as warranty information.”
Top Three Fastest Growing RFID Economic Sectors
(In Descending Order)
1. Retail Services
2. Commercial Services
3. Health Care Services
“While the potential for viable RFID applica-
tions within economic sectors appears vir-
tually limitless, few applications have trans-
lated into consistent and profitable oppor-
tunities, with price often being the decisive
barrier. Of the current applications, the
majority of RFID shipments are attributed to
the well-established, traditional
security/access control and transportation
applications where RFID has proven success
(see Exhibit 2). By 2005, supply chain man-
agement applications are expected to join
these applications in holding the lion’s share
6
of RFID market revenues, especially as the
market for smart labels grows.
“Over the next five years, point of sale
(POS), rental item tracking, and baggage
handling applications are anticipated to
exhibit the fastest annual growth. Given the
growth forecasts of these application seg-
ments, it is not surprising that current and
potential RFID end users seem most interest-
ed in these applications’ possibilities.
However, potential end users are evaluating
RFID for use in virtually every application
segment to improve efficiency, especially in
supply chain management. Widely used and
established applications such as
security/access control and asset manage-
ment are still being evaluated and will con-
tinue to grow, but perhaps not at the rate
of the emerging applications.”13
Top Five Fastest Growing RFID Application
(In Descending Order)
1. Point of Sale
2. Rental Item Tracking
3. Baggage Handling
4. Real-Time Location Systems
5. Supply Chain Management
RFID Challenges
Before RFID deployment resumes its growth,
several obstacles need to be overcome.
Will Cappelli, an Analyst of the Meta Group
has summarized some of the issues: 14
First, the market will require standardization
and stabilization, with regard to both the
actual technology and functionality
deployed within the various RFID chips and
the syntax and semantics of the RFID signals
themselves. At present, global organiza-
tions face the prospect of having to moni-
tor, manage, and translate between two dif-
ferent signal grammars depending on how
their intelligent objects are distributed
among the regions of Europe and the rest
of the world
Second, RFID technology’s potential ability
to enable automated gathering of informa-
tion about post-sale product usage has
already stirred up privacy anxieties.
Legislation limiting or even preventing the
deployment of RFID has begun to wend its
way through both national and regional leg-
islative bodies.
Third, RFID signal and reader technology -
taking into account some of the more
recent enhancements previously mentioned
- operates at a low semantic level. At the
same time, the volume of signals generated
is large. To actually make use of much of the
information contained within the signals,
vendors will need to develop (and organi-
zations will need to implement) a rich two-
dimensional infrastructure.
In order for the potential benefits of RFID to
be realized by the economy, these chal-
lenges will need to be effectively
addressed by industry.
7
Notes
1 This ITAA white paper was prepared by Tristram Carlisle,
Innovation At-The Edge Program Manager. The Innovation
At-The-Edge program’s mission is to educate, inform and
organize opinion around the value proposition of emerging
“edge of the network” applications.
2 http://www.aimglobal.org/technologies/rfid/
3 http://www.epcglobalinc.com/about/faqs.html#7
4 ibid
5 http://www.nyjournalnews.com/newsroom/012204/
d0122rfid.html
6 http://www.nwfusion.com, by Ann Bednarz
7 www.infoworld.com, by Laura Rohde, IDG News Service
8 http://www.rfidjournal.com/article/articleview/421
9 http://www.rfidjournal.com/article/articleview/780/1/1,
by Jonathan Collins
10 http://news.com.com/2100-1029_3-5065388.html by
Alorie Gilbert
11 http://www.eff.org/Privacy/Surveillance/RFID/rfid_posi-
tion_statement.php
12 http://www.vdc-corp.com/autoid/press/ archives/01/
pr01-44.html
13 Venture Development Corporation, VDC, “Global
Markets and Applications for Radio Frequency Identification
Equipment and Systems
14 http://www.metagroup.com/us/display
Article.do?oid=47313;
http://searchcio.techtarget.com/originalContent/0,289142,si
d19_gci950614,00.html
About ITAA
With 380 member companies, the
Information Technology Association of
America (ITAA) is the leading trade associa-
tion serving the information technology
industry. Founded as the Association of
Data Processing Service Organizations
(ADAPSO) in 1961, ITAA has expanded its
constituency over the years to include com-
panies in every facet of the IT industry,
including computer hardware, software,
telecommunications, Internet, ebusiness, e-
education, outsourcing, computer services
and more. ITAA seeks to foster an environ-
ment that is conducive to the health, pros-
perity and competitive nature of the infor-
mation technology industry and to help its
members succeed in delivering the benefits
of IT to their customers. The Association’s
industry development programs include
advocacy on legislative and regulatory
issues, studies and statistics, domestic and
international market development and
industry promotion. ITAA also provides
extensive opportunities for business devel-
opment, particularly for firms seeking to
build market credibility, brand awareness,
customer access and strategic partnerships.